and 00-3239 JACOBS CONSTRUCTORS, INC v. NPS ENERGY SERVICES, INC. D. C. Civil No. 97-cv-00131 NPS Energy Services, Inc

Filed September 4, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 00-3238 and 00-3239
JACOBS CONSTRUCTORS, INC.
v.
NPS ENERGY SERVICES, INC.
(D. C. Civil No. 97-cv-00131)
NPS Energy Services, Inc.,
Appellant at No. 00-3239
JACOBS CONSTRUCTORS, INC.
v.
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA
(D. C. Civil No. 98-cv-00205)
Jacobs Constructors, Inc.,
Appellant at No. 00-3238
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D. C. Nos. 97-cv-00131 and 98-cv-00205)
District Judge: The Honorable Sean J. McLaughlin
Argued March 1, 2001
BEFORE: SLOVITER, NYGAARD, and ROTH,
Circuit Judges.
(Filed September 4, 2001)

-- 1 of 22 --

Dennis A. Watson, Esq. (Argued)
Andrew F. Adomitis, Esq.
Grogan, Graffam & McGinley
Three Gateway Center, 22nd Floor
Pittsburgh, PA 15222
Counsel for Jacobs Constructors,
Appellant/Cross Appellee
Elizabeth C. Bailey, Esq.
Thomas McKay, III, Esq. (Argued)
Cozen & O' Connor
1900 Market Street, The Atrium
Philadelphia, PA 19103
Counsel for NPS Energy,
Appellees/Cross Appellants
R. Bruce Morrison, Esq. (Argued)
Conrad J.J. Radcliffe, Esq.
Marshall, Dennehey, Warner,
Coleman & Goggin
1845 Walnut Street
16th Floor
Philadelphia, PA 19103
Counsel for National Union Fire
Ins. Co., Appellees/Cross
Appellants
OPINION OF THE COURT
NYGAARD, Circuit Judge.
In these consolidated declaratory judgment actions, we
are presented with disputes concerning two contracts: an
indemnification agreement between a contractor and a
subcontractor, and a subsequent insurance contract
between the contractor and an insurance company. On
appeal, there are three primary issues: (1) whether NPS
Energy Services is obligated to defend Jacobs Constructors,
Inc., pursuant to their subcontract, in a declaratory
judgment action in which a third party, Pennzoil Products
Company, is seeking contractual indemnification from
2

-- 2 of 22 --

Jacobs for work-related injuries and deaths; (2) whether
NPS Energy fulfilled its contractual obligation to name
Jacobs as an additional insured on the National Union Fire
Insurance Company of Pittsburgh insurance agreement;
and (3) whether the insurance agreement between National
Union and Jacobs, which covers Jacobs as an "additional
insured," requires National Union to indemnify and defend
Jacobs in the declaratory judgment action between Pennzoil
and Jacobs.
The District Court partially granted cross-motions for
summary judgment, holding that NPS Energy is obligated
to provide an interim defense on behalf of Jacobs. The
District Court also held that NPS Energy fulfilled its
obligation to name Jacobs as an additional insured on the
National Union Policy. Finally, the court held that National
Union' s insurance policy does not provide coverage for
liability that an additional insured assumes pursuant to an
indemnity agreement. For the reasons discussed below, we
will affirm in part and reverse in part.
I. Facts and Procedure
This case arises out of a fire and explosion that occurred
on October 16, 1995, at Pennzoil' s oil refinery in Rouseville,
Pennsylvania. Before the explosion, Pennzoil hired Jacobs
to construct an addition to the refinery known as the
Specialty Wax Project. Under the terms of their contract,
Jacobs agreed to indemnify Pennzoil for liability and
defense costs for all claims arising from the personal injury
or death of subcontractor employees, regardless of the
cause. Jacobs' indemnity obligations, however, did not
extend to damage or loss resulting from Pennzoil' s willful
misconduct or gross negligence.
Jacobs, in turn, hired NPS Energy to perform the
mechanical services work at the Specialty Wax Project. Like
the general contract between Jacobs and Pennzoil, the
subcontract contained an indemnity clause, requiring NPS
Energy to indemnify Jacobs. It also required NPS Energy to
procure commercial general liability coverage of at least five
million dollars for each occurrence and five million dollars
in the aggregate. As a result, NPS Energy obtained a
3

-- 3 of 22 --

general liability policy ("primary policy") and an umbrella
policy with National Union. Under both policies, NPS
Energy was covered as a "named insured" and Pennzoil and
Jacobs were covered as "additional insureds." The terms of
both the indemnification agreement and the umbrella
insurance policy are contested.
The fire and explosion occurred near the portion of the
Pennzoil refinery where Jacobs and NPS Energy were
working. The explosion seriously injured and killed several
individuals, including employees of NPS Energy.
Subsequently, the injured and representatives of deceased
NPS Energy employees brought personal injury and
wrongful death actions against Pennzoil. Neither NPS
Energy nor Jacobs were joined in these actions. Pennzoil,
however, sought to enforce its respective indemnification
agreements with Jacobs and NPS Energy. Both denied
liability and refused Pennzoil' s tender. Pennzoil also
brought claims against National Union. National Union
declined coverage contending that the lawsuits arose out of
Pennzoil' s negligence.
Pennzoil filed a declaratory judgment action against
Jacobs in the District Court of Harris County, Texas. It
sought a declaration that Jacobs was obligated to defend
against the NPS Energy employee suits. Pennzoil eventually
added a breach of contract claim. Jacobs denied liability,
arguing that Pennzoil caused the fire through its gross
negligence and/or willful misconduct.
Thereafter, NPS Energy, National Union, and Pennzoil
entered into a Settlement Agreement and Release. As part
of the agreement, National Union agreed to tender the full
value of its one million dollar primary policy, as well as four
million dollars under the umbrella policy, so Pennzoil could
settle the employee claims. The agreement also required
Pennzoil to release NPS Energy and National Union from
any further fire-related liability. Pennzoil, however, reserved
the right to seek indemnity from Jacobs. As such, it
continued to pursue its declaratory judgment action in
Texas in order to recover the additional cost of resolving the
employee suits not covered by the National Union
settlement, approximately five million dollars.
4

-- 4 of 22 --

In response to Pennzoil' s action in Texas, Jacobs filed a
declaratory judgment action in the Western District Court
of Pennsylvania against NPS Energy. It requested the
following declaration: (1) Jacobs is entitled to
indemnification from NPS Energy for any payments it may
be required to make to Pennzoil; (2) NPS Energy is obligated
to defend Jacobs; (3) the subcontract between NPS Energy
and Jacobs required NPS Energy to name Jacobs as an
additional insured in the National Union Insurance Policy;
and (4) NPS Energy is not entitled to indemnification from
Jacobs for payments it made or may make to Pennzoil. NPS
Energy filed a motion to dismiss, arguing that the case was
not ripe for decision given the pendency of the Texas action.
The District Court granted the motion in part. First, it held
that Jacobs' requested indemnification from NPS Energy
was not ripe because additional fact finding was necessary
and could interfere with the Texas action. Second, the court
held that the question of whether NPS Energy was obligated
to defend Jacobs was ripe, but only to the extent that
Jacobs sought an interim defense in the Texas action.
Finally, the court denied NPS Energy' s motion with respect
to naming Jacobs as an additional insured and Jacobs'
obligation to indemnify NPS Energy because the record was
not sufficiently developed on either issue.
Jacobs also filed a declaratory judgment action against
National Union. In it, Jacobs requested a declaration
stating that: (1) National Union must indemnify Jacobs for
payments that Jacobs is obligated to make to Pennzoil as a
result of the Texas action; and (2) National Union must
defend Jacobs in the Texas action. The District Court
consolidated Jacobs' action against both NPS Energy and
National Union. Thereafter, all three parties filed motions
for summary judgment.
The District Court granted Jacobs' summary judgment
motion concerning NPS Energy' s interim duty of defense in
the Texas action. It held that the subcontract with Jacobs
does not contain any language that limits the scope of NPS
Energy' s duty to defend to tort claims or claims brought
directly by plaintiffs who suffered personal injury or
property damage. The District Court also granted NPS
Energy' s summary judgment motion. It held that NPS
5

-- 5 of 22 --

Energy was required to name Jacobs as an additional
insured on the National Union insurance policies but
nonetheless had satisfied that contractual requirement. In
addition, the District Court declined to issue a declaration
regarding whether NPS Energy was entitled to
indemnification from Jacobs for any payments it made or
may make to Pennzoil. It reasoned that Jacobs failed to
produce any evidence that NPS Energy made payments to
Pennzoil or that NPS Energy sought indemnification from
Jacobs. Finally, the District Court granted National Union' s
summary judgment motion. The court held that National
Union' s indemnity obligations to Jacobs were not ripe,1 and
that National Union' s umbrella policy did not provide
Jacobs a defense in the Texas action because it listed
Jacobs only as an additional insured.
Jacobs appeals the court' s judgment: (1) that NPS Energy
fulfilled its obligation to name Jacobs as an additional
insured on the National Union insurance agreement; and
(2) that the National Union umbrella policy does not require
National Union to provide Jacobs with indemnification or a
defense in the Texas action. NPS Energy cross-appeals,
arguing that, per the terms of its subcontract, it is not
obligated to provide Jacobs with a defense in the Texas
action. 2
_________________________________________________________________
1. After the District Court held that Jacobs' claims of indemnity against
NPS Energy were not ripe for review, Pennzoil and Jacobs settled the
Texas declaratory judgment action. Subsequently, Jacobs filed a
complaint in the United States District Court for the Western District of
Pennsylvania against NPS Energy. The complaint alleges a breach of
contract against NPS Energy for failing to indemnify Jacobs for its
settlement with Pennzoil and pay Jacobs' legal costs in litigating the
Texas contract dispute. This action is pending.
2. Because, as noted in Footnote 1, Pennzoil' s declaratory judgment
action against Jacobs is settled, Jacobs' claim that NPS Energy is
obligated to provide it with an interim defense is not a claim for an
actual defense. Rather, in the wake of the settlement, it is a claim for
reimbursement for defense costs. However, in order to avoid confusion,
we will retain the label used by the parties and refer to Jacobs' claim
against NPS Energy as a duty to defend claim.
6

-- 6 of 22 --

II. Standard of Review
Because this is an appeal from a grant of summary
judgment, our review is plenary. Witkowski v. Welch, 173
F. 3d 192, 198 (3d Cir. 1999). Thus, we apply the same
standard used by the District Court. See id. Summary
judgment is appropriate if "there is no genuine issue of
material fact and the moving party is entitled to judgment
as a matter of law." Fed. R. Civ. P. 56(c). In making this
determination, we must consider the evidence in the record
in the light most favorable to the nonmoving party. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106
S.Ct. 2505, 2510 (1986).
Moreover, we have plenary review over a District Court' s
interpretation of state law, see Chemical Leaman Tank
Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F. 3d 976, 983 (3d
Cir. 1995), as well as its conclusion as to the legal
operation of an insurance policy. New Castle County v.
Hartford Accident & Indem. Co., 933 F. 2d 1162, 1183 (3d
Cir. 1991). The District Court determined, and the parties
do not dispute, that Pennsylvania law applies to this case.
As such, we must apply the substantive law of
Pennsylvania. See Borse v. Piece Goods Shop, Inc., 963 F. 2d
611, 613 (3d Cir. 1992).
III. Discussion
We will first address Jacobs' requested declarations
against NPS Energy. For purposes of this appeal, Jacobs
claims that NPS Energy has an interim duty to defend it in
the Texas declaratory judgment action with Pennzoil, and
that NPS Energy has an obligation to list it as an additional
insured on the National Union Insurance Policy. Then, we
will consider Jacobs' claim that National Union has an
obligation to indemnify and defend it in the Texas action.
A. NPS Energy's Duty to Defend
Jacobs' demand for NPS Energy to defend it in the Texas
declaratory judgment action against Pennzoil is premised
on indemnity provisions found in sections 9A and 9C of its
subcontract with NPS Energy. Sections 9A and 9C state in
pertinent part:
7

-- 7 of 22 --

A. To the fullest extent permitted by law with respect
to the work covered by the Subcontract,
Subcontractor agrees to defend, indemnify, save
and hold harmless, the Owner and Contractor, and
all their affiliates, parents, subsidiaries, divisions,
directors, officers, agents, heirs, assigns,
successors-in-interest, representatives and
employees ("Indemnitees"), from and against the
following: All claims, liabilities, demands, damages,
losses, costs and expenses, including reasonable
attorneys' fees, awards, fines and judgments, in
law or in equity, of every kind and nature
whatsoever ("Claims" ), arising by reason of
personal injury, the death of or bodily injury to
persons (including employees of the subcontractor),
design defects (if design originated from
subcontractor), damages or destruction of property
or the loss of use thereof, arising out of or alleged
to have arisen out of in whole or in part by, or in
connection with, Subcontractor' s operations to be
performed under this Subcontract, . . . but
excluding the sole negligence and exclusive
negligence or willful misconduct of the
Indemnitees.
C. In the event of injury to or death of any person or
loss of or damage to property or the loss of use
thereof, arising as described in subparagraphs (1)
and/ or (2) below, it shall be assumed, as between
Contractor and Subcontractor and until it has been
finally determined otherwise, that the Indemnitees
are entitled to be defended and indemnified by
Subcontractor pursuant to the provisions hereof;
and, in such event, Subcontractor and its insurer,
irrespective of any allegations in the pleadings,
shall defend any lawsuit or litigation brought
against any of the Indemnitees with respect to any
such injury, death, loss, or damage:
(1) where such injury, death, loss or damage
occurred to any employee of Subcontractor or of its
sub-contractors of any tier;
. . .
8

-- 8 of 22 --

The indemnitees shall be entitled at their expense
to retain their own attorneys to assist and monitor
counsel hired by Subcontractor and its insurer to
defend the indemnitees pursuant hereto.
J.A. at 121-22 (emphasis added).
The District Court concluded that section 9A only applies
after there is a "final determination" of who will ultimately
pay for Jacobs' defense. Thus, because the Texas action
was not resolved at the time Jacobs sought its declarations,
the District Court focused solely on section 9C, which
contains an "interim cost shifting feature. " The court held
that section 9C obligates NPS Energy to provide Jacobs
with an interim defense against Pennzoil. It reasoned that
section 9C does not contain any language that limits the
scope of the duty to defend to tort claims or claims brought
directly by plaintiffs who suffered personal injury or
property damage. The court construed the phrase"any
lawsuit or litigation brought against any of the Indemnitees
with respect to any such injury, death, loss or damage" as
meaning any type of suit relating to a personal injury.
Thus, it held that section 9C could apply to contractual
indemnity arising out of a personal injury claim.
NPS Energy argues that the District Court erroneously
focused upon whether section 9C expressly excludes
contractual indemnity claims. Under Pennsylvania law, it is
well-established that indemnification for a party' s own
negligence will not be inferred and must be stated
expressly, clearly, and unequivocally in an indemnity
clause. NPS Energy argues that this principle also applies
to the indemnification and defense of a party' s contractual
liability. Thus, it contends that the District Court should
have examined whether section 9C expressly includes,
rather than excludes, such obligations. Although this a
difficult question, we agree with NPS Energy.
The Pennsylvania Supreme Court has not addressed
whether an indemnity provision can extend to an
indemnitee' s independent contractual liability to indemnify
and defend a third party, where such obligation is not
expressed in unequivocal terms. Thus, we are " required by
controlling precedent to predict how the Pennsylvania
9

-- 9 of 22 --

Supreme Court would decide this issue." Hon v. Stroh
Brewery Co., 835 F.2d 510, 512 (3d Cir. 1987).
We begin with general indemnity principles. The
construction of an indemnity contract is a question of law
for the court to decide. See Hutchinson v. Sunbeam Coal
Corp., 513 Pa. 192, 201, 519 A.2d 385, 390 (1986). Under
Pennsylvania law, the court must strictly construe the
scope of an indemnity contract against the party seeking
indemnification. See Brown v. Moore, 247 F. 2d 711, 722 (3d
Cir. 1957), disapproved on other grounds. As with any other
contract, the court must determine the intentions of the
parties. See Metzger v. Clifford Reality Corp. , 327 Pa. Super.
377, 385, 476 A.2d 1, 4 (1984) (citation omitted). If the
indemnity clause is clear and unambiguous, then the
intentions of the parties should be ascertained primarily by
looking to the language used in the agreement. See Fallon
Elec. Co., Inc. v. The Cincinnati Ins. Co., 121 F. 3d 125, 127
(3d Cir. 1997). Only where the court finds ambiguity may it
consider the circumstances under which the contract was
signed. See East Crossroads Ctr., Inc. v. Mellon Stuart Co. ,
416 Pa. 229, 230, 205 A.2d 865, 866 (1965). The mere fact
that the parties do not agree upon the proper interpretation
of an indemnity clause does not necessarily render the
clause ambiguous. See Metzger, 327 Pa. Super. at 386, 476
A.2d at 4.
It is well-settled in Pennsylvania that an indemnity
agreement that covers loss due to the indemnitee' s own
negligence must be clear and unequivocal. The
Pennsylvania Supreme Court first set forth this principle in
1907, in Perry v. Payne, 217 Pa. 252, 66 A. 553 (1907). In
that case, the Court stated:
We think it clear, on reason and authority, that a
contract of indemnity against personal injuries, should
not be construed to indemnify against the negligence of
the indemnitees, unless it is so expressed in
unequivocal terms. The liability on such indemnity is
so hazardous, and the character of the indemnity so
unusual and extraordinary, that there can be no
presumption that the indemnitor intended to assume
the responsibility unless the contract puts it beyond
10

-- 10 of 22 --

doubt by express stipulation. No inference from words
of general import can establish it.
Id. at 262, 66 A. at 557.
The Pennsylvania Supreme Court reinvigorated the Perry
rule in 1991, in Ruzzi v. Butler Petroleum Co. , 527 Pa. 1,
588 A.2d 1 (1991). Ruzzi concerned an agreement whereby
a property owner would indemnify a contractor "from any
and all liability for claims for loss, damage, injury or other
casualty to persons or property caused" by a renovation
operation. In light of Perry, the court held that the clause
was not specific enough to require indemnification for the
contractor' s own negligence. In so ruling, the Ruzzi court
stated:
We conclude that the only intent that can be gleaned
from this document is that the parties did not intend
to indemnify for acts of the indemnitee' s negligence,
since words of general import are used. We can discern
no reason to abandon the Perry rule of contract
interpretation which is still a valuable rule of
construction, rooted in reason and authority and reject
Butler Petroleum' s contrary arguments.
Id. at 9, 588 A.2d at 5.
We believe that the Pennsylvania Supreme Court would
hold that the Perry-Ruzzi doctrine applies to indemnity
claims for losses contractually assumed by the indemnitee.
We reach this conclusion for several reasons. First, the
policy underlying the Perry-Ruzzi doctrine applies with
equal force to indemnification for contractual liability to a
third party. Similar to a contract to indemnify another for
his own negligence, an agreement to indemnify another for
his contractual liability to a third party imposes an
obligation, regardless of the fault of the indemnitor.
Further, the extent of such an obligation is "uncertain and
indefinite, and entirely in the hands of [the indemnitee.]"
See Perry, 217 Pa. at 259, 66 A. at 555. Therefore, such
indemnification imposes an "unusual" and "extraordinary"
obligation in the same manner as indemnification for one' s
own negligence. Thus, such an obligation must be stated
plainly, in clear and unequivocal language.
11

-- 11 of 22 --

The Fifth Circuit' s decision in Foreman v. Exxon Corp.,
770 F.2d 490 (5th Cir. 1985), which addressed the same
issue, supports our rationale. In Foreman, Exxon, the
owner of an oil platform, agreed to indemnify Diamond M.,
the owner of a drilling rig on the platform, for any personal
injury suit brought against it by invitees on the platform.
Offshore, the corporation in charge of drilling operations on
the platform, agreed to indemnify Exxon for any personal
injury claims brought by Offshore employees. An Offshore
employee was injured while working on the platform and
sued Exxon and Diamond M. Diamond M. sought
indemnity for its liability from Exxon under the
Exxon/Diamond M. indemnification agreement. In turn,
Exxon sought indemnity from Offshore, including amounts
that it owed to Diamond M. See Foreman, 770 F. 2d at 491-
92.
The Fifth Circuit held that Offshore' s indemnity
obligation to Exxon did not cover Exxon' s contractual
liability to Diamond M. The court held that the situation
was analogous to a party seeking indemnity for its own
negligence:
A contract to indemnify another for his own negligence
imposes an extraordinary obligation. Thus an
indemnitor is entitled to express notice that under his
agreement, and through no fault of his own, he may be
called upon to pay damages caused solely by the
negligence of the indemnitee. For the same reasons
express notice is required where a party seeks to shift
his contractual liability to indemnify a third party .
Id. at 498 (quoting Corbett v. Diamond M. Drilling Co. , 654
F. 2d 329, 333 (5th Cir. 1981)) (emphasis added). Thus,
indemnity for contractually assumed liability may"arise
only from the plainly expressed intentions of the parties,
spelled out in unambiguous terms." Id. at 498.
Next, our position is consistent with the well-established
principle in Pennsylvania that an indemnity clause is to be
construed against the party seeking indemnification.
Indeed, because the nature and purpose of any indemnity
agreement involves the shifting and voluntary assumption
of legal obligations, they are to be narrowly construed. As
12

-- 12 of 22 --

a general rule, parties must use clear, unambiguous
language to ensure their enforcement. It follows that the
enforcement of the duty to indemnify for contractual
liability should hinge on the same criteria.
Having concluded that Perry-Ruzzi applies where a party
seeks indemnification for its independent contractual
liabilities, our next task is to apply it to the present case.
The agreement at issue here does not unequivocally require
NPS Energy to defend Jacobs in an indemnification suit
brought by a third party. Rather, section 9C of the
agreement simply provides that:
In the event of injury to or death of any person or loss
of or damage to property or the loss of use thereof . . .
it shall be assumed . . . that the Indemnitees are
entitled to be defended and indemnified by the
Subcontractor . . . and, in such event, Subcontractor
and its insurer, irrespective of any allegations in the
pleadings, shall defend any lawsuit or litigation
brought against any of the Indemnitees with respect to
any such injury, death, loss, or damage . . . .
J.A. at 121-22.
Absent express language to the contrary, we believe that
the phrase "lawsuit or litigation brought with respect to any
such injury, death, loss, or damage" should be interpreted
more narrowly. Rather than covering any lawsuit related to
a personal injury or death, we believe the phrase extends
only to NPS Energy' s direct liability to Jacobs. In other
words, NPS Energy is liable only for claims brought directly
against Jacobs. Therefore, Pennzoil' s personal injury claims
against Jacobs are too attenuated. NPS Energy simply did
not have ample notice of its obligation to defend Jacobs in
such suits.
Nonetheless, Jacobs argues that the language
"irrespective of any allegations in the pleadings" clarifies the
breadth of NPS Energy' s potential liability. However, Jacobs
fails to read this language in context. It is immediately
followed by the phrase "shall defend any lawsuit or
litigation brought against any of the Indemnitees with
respect to any such injury, death, loss or damage . . . ." We
read this phrase narrowly in accordance with its plain
13

-- 13 of 22 --

meaning and conclude that it refers only to allegations
relating to injury, death, loss, or damage. Similarly, section
9A does not contain any agreement by NPS Energy to
defend Jacobs in its disputes with Pennzoil over
contractually assumed liability.3 Section 9A states only that
NPS Energy
agrees to defend, indemnify, save and hold harmless,
the Owner and Contractor . . . from and against the
following: All claims . . . arising by reason of personal
injury, the death of or bodily injury to persons
(including employees of the subcontractor), design
defects (if designed originated from subcontractor),
damages or destruction of property . . . .
J.A. at 121-22. Applying the Perry-Ruzzi doctrine, we
interpret the phrase "All claims . . . arising by reason of
personal injury" to mean tort claims. Like the text
contained in section 9A, this broad language is simply not
specific enough to require defending against contractual
liability, even if triggered by personal injuries.
In addition to the agreement itself, the record indicates
that NPS Energy was unaware of its alleged duty to defend
Jacobs in suits arising from contractual obligations. For
example, Jacobs did not disclose to NPS Energy the nature
or extent of its broad indemnification obligations to
Pennzoil. In fact, Jacobs' subcontract negotiators were
unaware of the substance of Jacobs' contract with Pennzoil.
Thus, NPS Energy had no way of knowing the broad and
far-reaching scope of its alleged indemnification duties.
Additionally, Jacobs offered the contract to NPS Energy on
a "take it or leave it basis." Jacobs required its
subcontractors to adhere to a written form subcontract,
with little or no alterations. J.A. at 35, 64. Accordingly, the
negotiations failed to provide NPS Energy with additional
information regarding its contractual duties.
_________________________________________________________________
3. As noted above, the District Court confined its analysis to whether
Jacobs had an interim duty to defend under section 9C, because the
Pennzoil action against Jacobs was still pending. Our analysis of Jacobs'
duty to defend claim, however, must include section 9A, which
contemplates a final determination, because the Pennzoil action against
Jacobs has been settled.
14

-- 14 of 22 --

Consistent with the policy of the Pennsylvania Supreme
Court as demonstrated in the Perry-Ruzzi doctrine, we will
not endorse the silent shifting or involuntary assumption of
obligations that an indemnitor ordinarily would not likely
undertake. To do otherwise would be to transform definitive
indemnification agreements into open-ended guarantees in
the nature of insurance policies. In sum, we conclude that
the Pennsylvania Supreme Court would apply the Perry-
Ruzzi doctrine to indemnity claims for losses contractually
assumed by an indemnitee. As such, NPS Energy' s duty to
defend Jacobs in contractual indemnity suits may arise
only from the plainly expressed intention of the parties,
spelled out in unambiguous terms. Given the absence of
such specific language in section 9A and 9C, we hold that
NPS Energy was not obligated to defend Jacobs against
contractual indemnity claims.
B. NPS Energy's Obligation to List Jacobs as an
Additional Insured
It is undisputed that NPS Energy maintained insurance
in the requisite amounts and named Jacobs as an
additional insured. Jacobs, however, argues that the
District Court erred by finding that NPS Energy satisfied its
contractual obligation to name Jacobs as an additional
insured on the National Union Policy, and yet nonetheless
concluded that Jacobs is not entitled to coverage. According
to Jacobs, the District Court' s rulings are mutually
exclusive. It contends that if NPS Energy had performed its
obligation to procure insurance under the subcontract,
then the National Union policies would have covered Jacobs
for all the contractual liabilities assumed by NPS Energy.
We disagree and conclude that the District Court was
correct in all respects.
The agreed upon insurance obligations undertaken by
NPS Energy are set forth in section 8 of the Jacobs/NPS
Energy subcontract. Section 8A requires NPS Energy to
maintain insurance coverage during the life of the
subcontract, including "[c]ommercial General Liability
Insurance with combined single limit for bodily injury
liability and property damage liability of at least
$5,000,000.00 for each occurrence and $5,000,000.00
aggregate." J.A. at 119. Section 8B of the subcontract
15

-- 15 of 22 --

requires that both Jacobs and Pennzoil be named as
additional insureds. Specifically, it provides in relevant
part:
The policies of insurance shall contain a provision
expressly extending the coverage thereof to contractual
liabilities assumed by said Subcontractor under the
subcontract, including, but not limited to,
Subcontractor' s indemnity and other obligations set
forth in the Paragraph entitled Subcontractor' s
Indemnity hereinafter, and shall name Contractor,
[Jacobs] its parent, subsidiaries, divisions, and
affiliated companies and its and their officers,
directors, employees, agents, heirs, assigns, successors
in interest, and representatives, and Owner [Pennzoil]
as additional insureds . . . .
Id. at 120.
The language of section 8B is clear and unambiguous.
The contract first requires NPS Energy to procure insurance
against contractual liability for itself. It states, "[t]he
policies of insurance shall contain a provision expressly
extending the coverage thereof to contractual liabilities
assumed by said Subcontractor under the subcontract . . ."
Id. (emphasis added).4 Then, in a separate clause set apart
by a comma, it requires NPS Energy to name Jacobs as an
additional insured. There is no express indication that NPS
Energy was required to procure contractual liability for
Jacobs. It is well settled in Pennsylvania that unambiguous
indemnity contracts are enforced strictly according to their
terms. See Kiewit Eastern Co., Inc., 44 F. 3d 1194, 1199 (3d
Cir. 1995); Fallon, 121 F. 3d at 127. Accordingly, the
District Court' s rulings are not contradictory. NPS Energy
complied with the requirements of section 8B, even though
the National Union policy does not cover Jacobs'
_________________________________________________________________
4. Jacobs spends a considerable amount of time in its brief arguing that
NPS Energy' s assumption of Jacobs' contractual indemnification
obligations to Pennzoil requires NPS Energy to provide it with insurance
coverage for such contractual liability. However, because we hold that
the subcontract indemnity agreement does not require NPS Energy to
indemnify Jacobs for its independent contractual liability, we do not
address this argument.
16

-- 16 of 22 --

contractual liability. As such, we affirm the District Court' s
entry of summary judgment with respect to this issue.
C. Jacobs' Coverage Under the National Union Policy
Jacobs next contends that it is insured under the
National Union Umbrella Policy for defense and indemnity
costs resulting from the Texas action.5 It argues that the
District Court erroneously held that the umbrella policy
affords an "additional insured" more restricted coverage
than a "named insured. " Again, we agree with the District
Court.
At the outset, we recognize certain general rules that
Pennsylvania courts have applied in construing insurance
policies. First, the court must "ascertain the intent of the
parties as manifested by the language of the policy. "
Standard Venetian Blind Co. v. American Empire Ins. Co.,
503 Pa. 300, 305, 469 A.2d 563, 566 (1983). In doing so,
an insurance policy must be read as a whole and its terms,
when unambiguous, must be construed according to their
plain and ordinary meaning. See Pennsylvania Mfrs. ' Ass' n
Ins. Co. v. Aetna Cas. & Sur. Ins. Co., 426 Pa. 453, 457,
233 A.2d 548, 551 (1967); see also Koval v. Liberty Mut.
Ins. Co., 366 Pa. Super. 415, 420, 531 A.2d 487, 489
(1987). Where a provision is ambiguous, it must be
construed in favor of the insured. See Standard Venetian
Blind Co., 503 Pa. at 305, 469 A.2d at 566. A provision is
ambiguous if reasonable persons, after considering the
context of the entire policy, would honestly differ as to its
meaning. See Lucker Mfg. v. Home Ins. Co., 23 F. 3d 808,
814 (3d Cir. 1994). However, the court should read the
_________________________________________________________________
5. As we stated previously, National Union issued a primary policy and
an umbrella policy to NPS Energy. Jacobs and Pennzoil are named as an
additional insured on both policies. Pursuant to a settlement agreement,
National Union has already agreed to pay Pennzoil a total of five million
dollars, including one million dollars from the primary policy and four
million dollars from the umbrella policy. The one million dollar payment
exhausted National Union' s coverage under the primary policy.
Accordingly, the District Court' s analysis focused on National Union' s
duties under the umbrella policy. The parties do not contest this
interpretation of the insurance policies and thus our analysis of Jacobs'
recovery will also be limited to the umbrella policy.
17

-- 17 of 22 --

policy to avoid ambiguities and not torture the language so
as to create them. See St. Paul Fire & Marine Ins. Co. v.
United States Fire Ins. Co., 655 F. 2d 521, 524 (3d Cir.
1981).
An insurer' s duty to defend arises "whenever the
complaint filed by the injured party may potentially come
within the policy' s coverage." Pacific Indem. Co. v. Linn, 766
F. 2d 754, 760 (3d Cir. 1985). If the factual allegations of
the complaint, taken as true, state a claim to which the
policy potentially applies, "the insurer must defend the case
until it [can] confine the claim to a recovery that the policy
[does] not cover." Cadwallader v. New Amsterdam Cas. Co.,
396 Pa. 582, 590, 152 A.2d 484, 488 (1959). To determine
whether a claim may be covered, the court must ascertain
the scope of the insurance coverage, and then analyze the
allegations in the complaint. See Britamco Underwriters,
Inc. v. Grzeskiewicz, 433 Pa. Super. 55, 59, 639 A.2d 1208,
1210 (1994).
An insurer' s duty to defend is separate and distinct from
its duty to indemnify. See Erie Ins. Exch. v. Transamerica
Ins. Co., 516 Pa. 574, 583, 533 A.2d 1363, 1368 (1987).
The duty to defend is broader than a duty to indemnify.
The duty to indemnify arises only when the insured is
found to be liable for damages covered by the policy. The
burden of proving that a particular claim falls within the
coverage of a policy is on the insured. See id. at 580, 533
A.2d at 1366-67.
The scope of National Union' s obligation to indemnify and
defend its insureds is defined in the umbrella policy section
entitled: "Insurance Agreements I. Coverage." This section
of the policy provides:
We will pay on behalf of the Insured those sums in
excess of the Retained Limit that the Insured becomes
legally obligated to pay by reason of liability imposed
by law or assumed by the Insured under an Insured
Contract because of Bodily Injury, Property Damage,
Personal Injury or Advertising Injury that takes place
during the Policy period and is caused by an
Occurrence happening anywhere in the world.
J.A. at 410 (emphasis added).
18

-- 18 of 22 --

Because Jacobs is seeking coverage for its contractual
indemnity obligation to Pennzoil, rather than direct liability
to NPS Energy employees, the issue is whether contractual
indemnity qualifies as an "Insured Contract" under the
umbrella policy. The District Court acknowledged that,
upon first inspection, the policy seems to provide coverage
to any insured for liability that it assumed pursuant to an
indemnity contract. However, the court went on to explain
that "Insured Contract" applies only to contracts or
agreements entered into by named insureds. Specifically,
the umbrella policy defines "Insured Contract" as
any oral or written contract or agreement entered into
by you and pertaining to your business under which
you assume the tort liability of another party to pay for
Bodily Injury, Property Damage, Personal Injury or
Advertising Injury to a third person or organization.
Tort liability means a liability that would be imposed
by law in the absence of any contract or agreement.
J.A. at 413 (bold in original, emphasis added). The
introductory provision of the policy makes clear that the
word "you" in the definition of insured contract refers only
to the named insured. It provides that "[t]hroughout this
policy, the words ` you' and ` your' refer to the Named
Insured as defined in Insuring Agreement IV, Definitions."
Id. at 410 (bold in original). Thus, according to the District
Court, the clear and unambiguous language of the
umbrella policy does not provide coverage for liability that
an additional insured, such as Jacobs, assumes pursuant
to an indemnity agreement.
Our careful review of the District Court' s interpretation of
the insurance policy finds it to be well-reasoned and
without error. We find Jacobs' arguments to the contrary
unpersuasive. First, Jacobs contends that a statement by
NPS Energy' s broker that the National Union policies
covered claims against Jacobs for contractual indemnity
contradicts the District Court' s restrictive interpretation of
the umbrella policy. Jacobs maintains that the broker' s
statement represents its reasonable expectations regarding
the type of coverage being provided by National Union.
We believe that the clear and unambiguous definition of
"Insured Contract" in the umbrella policy defeats Jacob' s
19

-- 19 of 22 --

argument that it reasonably expected broader coverage
under the National Union policy than permitted by the
District Court. Moreover, the broker' s statement is extrinsic
evidence. In the absence of ambiguity, the interpretation of
an insurance policy must focus upon the terms of the
agreement itself rather than extrinsic evidence. See John
Wyeth & Brother, Ltd. v. Cigna Int' l Corp., 119 F. 3d 1070,
1075 (3d Cir. 1997). Because we agree with the District
Court that the scope of the umbrella policy' s coverage is
clear and unambiguous, we decline to review this evidence.
Next, Jacobs contends that the District Court erroneously
interpreted the terms "you" and "your" in the definition of
"Insured Contract." Specifically, Jacobs argues that,
although the policy expressly provides that "the words ` you'
and ` yours' refer to the Named Insured," these terms are
not limited to named insureds. Jacobs reasons that"refers"
does not connote an exclusive, limited definition. According
to Jacobs, had the policy intended such a limitation, it
would have used the term "means," which indicates a
specific definition, rather than "refers, " which does not. We
agree with Jacobs that "means" and "refers" have different
meanings. Webster' s Dictionary defines "means" as "to
serve or intend to convey, show, or indicate: signify. "
WEBSTER' S NINTH NEW COLLEGIATE DICTIONARY 736 (9th ed.
1988). In contrast, it defines "refers" as"to think of, regard,
or classify within a general category or group" and "to have
relation or connection: relate." Id. at 988. However, we do
not believe that the District Court incorrectly interpreted
the terms. The policy employs the term "means" to provide
a specific definition of a term ("Insured Contract") in the
policy. In contrast, the policy' s use of the term"refers"
simply links "you" and "yours" to "named insured," a term
that is already defined elsewhere in the policy. The District
Court' s application of these terms is not inconsistent with
the above distinction. Thus, this argument is likewise
without merit.
Finally, Jacobs contends that the District Court' s
restriction of contractual liability coverage to named
insureds creates an ambiguity within the terms of the
primary policy and therefore is erroneous. 6 Specifically,
_________________________________________________________________
6. Jacobs concedes that the primary policy has been exhausted and is no
longer at issue in this matter. It contends, however, that a provision in
20

-- 20 of 22 --

Jacobs maintains that limiting the applicability of"you"
and "your" to contracts entered into by named insureds
renders section 8f.(3) of the primary policy superfluous.
Section 8f.(3) follows the primary policy' s definition of
"Insured Contract, " which, like the umbrella policy, uses
the terms "you" and "your" in describing coverage. Jacobs
argues that "you" and "your" cannot be limited to named
insureds because section 8f.(3) provides that an"Insured
Contract" "does not include that part of any contract or
agreement: . . . [u]nder which the insured, if an architect,
engineer or surveyor, assumes liability for an injury or
damage arising out of the insured' s rendering or failure to
render professional services . . . ." J.A. at 344. Jacobs
contends that by carefully defining the circumstances in
which coverage is not extended to insureds who provide
professional-type services, National Union acknowledged
that all other insureds receive coverage.
Once again, we do not agree. Like the District Court, we
do not think the provisions of the primary policy are
relevant because its limits were exhausted. However, even
if that policy were applicable, section 8f.(3) merely narrows
the definition of an "Insured Contract. " In other words,
under section 8f. (3), an insured, whether named or
additional, is not covered for contractual liability if he or
she is an architect, engineer or surveyor who assumed
liability for injury arising out of personal services. Thus, it
does not expand the primary policy' s coverage beyond
named insureds. Accordingly, this argument is also
insufficient to satisfy Jacobs' burden to demonstrate that
its contractual indemnity obligations fall within the purview
of the umbrella policy.
IV. Conclusion
For the foregoing reasons, we will reverse the order of the
District Court granting partial summary judgment to
Jacobs, and will affirm the order of the District Court
_________________________________________________________________
the umbrella policy states that its coverage cannot exceed coverage in
the primary policy. Thus, Jacobs argues that the language of the primary
policy is relevant.
21

-- 21 of 22 --

granting partial summary judgment to NPS Energy and
summary judgment to National Union.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
22

-- 22 of 22 --